New car tax rules explained

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28 March 2018 • 2:22pm

Last April saw the introduction of a brand new set of rules for Vehicle Excise Duty (VED), the tax imposed on new cars. The implications of these changes in tax bands means that in some cases tax on cars will leap up in price, while some may actually be cheaper which is something to consider when buying a new car.

VED for the first year is still based on CO2 emissions, in 13 different bands, but it is only free for zero-emission cars such as those powered by electric and hydrogen - hybrid cars will be priced depending on their carbon footprint, however minor (see table here).

After that, the tax paid depends on the type of vehicle. For standard petrol or diesel vehicles, it’s a flat fee of £140 a year.

An ‘alternatively-fuelled’ car - a hybrid, or powered by bioethanol of LPG - is now just £10 cheaper at £130 a year, while in the first year zero-emission cars remain free of tax.

After the first year’s fixed costs there is a five-year supplement of £310 a year you have to pay for any cars - regardless of its fuel - that cost over £40,000 (published price, before discounts). After those five years are up, the road tax reverts to the standard rates as above.

Which new car buyers does it affect most?

Many hybrid, smaller and often more economical cars were previously free of road tax, so these changes could have a significant impact for buyers in 2017.

Likewise, buyers of zero emission cars that cost over £40,000 will have to pay the five-year supplement, something they would not have had to do under the previous rules.

On the other hand, buyers of high-performance cars that eat up a lot of fuel - that were previously taxed highly - are likely to benefit from the flat rates, the increases not affecting them as much proportionately.

If your car was registered with the DVLA before 1 April, then the changes shouldn’t affect you, but it’s worth checking the Government’s official vehicle tax rates table if you are not sure.

Why it is important to get car warranty

Britain bought more new cars than ever in 2016at 2.69 million, but some predict it is a peak that will drop significantly in 2017 - partly because of the new car tax rules making it a more expensive choice, and partly due to the weakness of the pound and the uncertainty around Brexit. Mike Hawes, chief executive of the SMMT (Society of Motor Manufacturers & Traders), predicted a 5% decline in new car sales in 2017.

With the likelihood of more people opting for keeping older cars, or going for more affordable cars, the importance of getting a good car warranty becomes more important.

A new car comes with a manufacturer’s warranty but doesn’t last forever - three years is the norm. The older your car gets, the more likely it is to run into difficulties or break down. So it is worth getting car insurance to ensure you are protected if things go wrong.